The Political Economy of Pollution Taxes in a Small Open Economy

1993

Resource and Energy Economics, 1998

This paper first shows that subsidies to the input into pollution abatement are inefficient when a Pigouvian pollution tax is available. Using a model where the government receives political contributions from environmental and industry lobby groups, it then explains the use of pollution abatement subsidies in environmental policy as primarily being tools for redistribution. The pollution abatement subsidy and pollution tax are determined in political equilibrium. The equilibrium subsidy rate is shown to depend on the subsidy elasticities of pollution and abatement, and lobby group membership.

SSRN Electronic Journal, 2002

In actual environmental policy, the design of actual pollution emission taxes differs significantly with the optimal Pigovian tax. In particular, earmarking prevails and actual taxes are usually combined with regulation. Furthermore tax rates are generally too low to significantly influence polluters' behavior. The paper develops a political economy model to explain these design parameters: the tax rate, earmarking pattern and whether the tax is combined with a regulation. An incumbent government selects these parameters under the influence of a green and a polluters' lobby groups. An earmarked tax is introduced in equilibrium which rate is lower than the regulatory shadow price when the status quo regulation is imperfectly enforced and if the green lobby is sufficiently weak.

Journal of Environmental Economics and Management, 2004

In this paper, we take a step towards understanding the role of democratic institutions on the level of pollution taxation. The theory predicts that presidential-congressional regimes set lower pollution taxes than parliamentary regimes. This results from the checks and balances built into the former, and the higher degree of legislative cohesion in the latter. We test the prediction using the method of propensity score matching along with data on gasoline prices from 86 democratic countries. The empirical evidence is consonant with the theory: we find that ceteris paribus the average price of super gasoline

2021

We investigate polluter lobbying against near-zero emission targets in a monopoly market. To this end, we compare three typical environmental policies—an emission cap regulation that restricts total emissions, an emission intensity regulation that restricts emissions per output unit, and an emission tax. We presume a policy to be most robust to lobbying when a lesser strict emission target (i.e., an increase in the targeted emission level) imposed by the government to the industry increases the firms’ profit least significantly among the three policies. We find that the emission tax is the most robust in the presence of lobbying if the government aims for a net-zero emission society. However, the emission tax is the least robust if the emission target is loose or the government is weak against lobbying. JEL classification codes: Q52, L13, L51

Economic Theory, 2014

This paper demonstrates that a pollution tax with a …xed cost component may lead, by itself, to segregation between clean and dirty …rms without heterogeneous preferences or increasing returns. We construct a simple model with two locations and two industries (clean and dirty) where pollution is a by-product of dirty good manufacturing. Under proper assumptions, a completely strati…ed con…guration with all dirty …rms clustering in one city emerges as the only equilibrium outcome when there is a …xed cost component of the pollution tax. Moreover, a strati…ed Pareto optimum can never be supported by a competitive spatial equilibrium with a linear pollution tax. To support such a strati…ed Pareto optimum, however, an e¤ective but unconventional policy prescription is to redistribute the pollution tax revenue from the dirty to the clean city residents.

International journal of business and economics, 2017

This paper empirically demonstrates the possibility of setting up an optimal pollution tax under imperfect markets and international trade in a domestic economy. The model illustrates a situation of partial equilibrium characterized by imperfect competition among domestic producers, where the domestic good is used as an alternative for an imported polluting commodity. In this paper, we bring in the possibility that the domestic firms can introduce innovative ideas through investment in R&D. The result shows that the optimal pollution tax under domestic economic distortions is a function of a ‘domestic production effect’ and a ‘pollution effect’. The paper concludes that when the firms execute R&D expenditures, the optimal policy adds an ‘innovative effect’, which captures the change in welfare coming from a reduction in total costs and this lead our results to a win-win situation.

2008

The literature on indirect tax reforms in pollution-ridden economies is quite limited. This paper, using a model of a small open economy with production and consumption generated pollution, considers the welfare implications of tax reforms within an integrated structure of consumption and production taxes. Specifically, both in the presence and absence of a binding government revenue constraint, we derive sufficient conditions for welfare improvement in the case where we implement (i) reforms in either production or consumption taxes, (ii) reforms in both consumption and production taxes and (iii) uniform changes in consumption taxes.

Journal of Public Economic Theory, 2013

The literature on indirect tax reforms in pollution-ridden economies is quite limited. This paper, using a general model of a perfectly-competitive small open economy with both production and consumption generated pollution, considers the welfare implications of tax reforms that take the structure of consumption and production taxes toward uniformity. Specifically, both in the presence and absence of a binding government revenue constraint, we derive sufficient conditions for welfare improvement in the case where we implement (i) reforms in either production or consumption taxes, and (ii) reforms in both consumption and production taxes.

Public Choice, 2003

This paper analyzes the incentive effects of pollution taxesversus pollution permits for a budget oriented Government.Pollution permits are analyzed as durable goods, and apollution tax is seen as being equivalent to leasing outpollution permits. First, a general model is developed, andthen four stylized types of Government are discussed (abenevolent dictator, a pure Leviathan, a green and a business-friendly Government). We show that all types of Governmentprefer a pollution tax system, but this regime is notnecessarily the best in social welfare terms. The intuition isthat a tax or leasing system makes it easier for theGovernment to credibly commit to the budget maximizing levelof pollution permits which is good for Government revenues,but not necessarily for social welfare.